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Levered Brothers, Inc. has a debt/equity ratio, D/E (in market value terms), of 0.5. The company's debt has a yield to maturity of 6%. The
Levered Brothers, Inc. has a debt/equity ratio, D/E (in market value terms), of 0.5. The company's debt has a yield to maturity of 6%. The equity has a beta of one, and the risk-free rate of return is 6%. The market risk premium, over and above the risk-free rate, is 9%. The corporate tax rate for the company, TC, is 35%. The company is expected to generate annual free cash flows of $215 million, every year indefinitely.
What would be the total value of the company?
a.1902.7 million
b.1433.3 million
c.1236.7 million
d.1791.7 million
e.931.7 million
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